Inheritance Tax is a minefield of rules and regulations and one of those issues that is frequently avoided until it’s too late. This is obviously a delicate subject for anyone to broach, but the later you leave it the less that can be done. Not everyone pays Inheritance Tax, it's only due if your estate - including any assets held in trust and gifts made within 7 years of death - is valued over the current threshold (£325K in 2014 to15 or £650K for a couple). Although life insurance policies are usually free of personal liability, in certain circumstances, pay outs may still be subject to tax.
This can be avoided if individuals take out life protection specifically to provide for named beneficiaries or alternatively put these policies under a separate trust for the heir, thereby removing the asset from your estate.
It is estimated that a further £530M annually goes to the Crown instead of those named in the will because little is known by the general public of this perfectly legitimate option. Without it a £100K life insurance policy can be reduced by as much as £40K so those affected need to take action sooner rather than later.
According to research, less than 30% of consumers can navigate this complex issue without the assistance of a Financial Advisor, so why are they also avoiding the issue? Are they really so loathe to offend or is it simply a case of self-preservation?
Most Advisors are well aware of this product but the possible liability involved with completing trust paperwork incorrectly - given the area is not FCA regulated - means they often refer their clients to Solicitors.
The recovering housing market is likely to see this issue affect more and more people but unfortunately there is no mandatory requirement for Advisers to talk to their clients about succession planning. Should they be forced to educate their clients on these issues, so they can help maximise the amount of wealth people can pass on to their loved ones and avoid unnecessary tax bills?
This is, perhaps, a classic example of the need for more dialogue between the Insurance and Financial Service Industries for the benefit of all. But we will all be pushing up daisies before that happens!